2018 (2) TMI 270 - AT - Income Tax

Validity of assessment u/s. 153A - incriminating material or evidence found - Held that - No incriminating material or evidence had been found during the course of search so as to doubt the transactions. It was noted that in the entire assessment order, the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assessee, leave alone the question of any incriminating material for the year under appeal. Therefore, the action of the AO is based upon conjectures and surmises and hence, the additions made is not sustainable in the eyes of law, because this issue in dispute is now no more res-integra, in view of the decision in the case Commissioner of Income Tax vs. Kabul Chawla reported (2015 (9) TMI 80 - DELHI HIGH COURT) - Decided in favour of assessee.

Summary

Issues Involved:
- Appeal against the order of Ld. CIT(A) for assessment years 2009-10 & 2010-11
- Quashing of order u/s. 153A of the Income Tax Act
- Genuineness of execution of contract and expenses
- Admissibility of additions based on incriminating material found during search
- Assessment of total income and net profit

Analysis:

1. Quashing of Order u/s. 153A:
The Revenue challenged the Ld. CIT(A)'s decision to quash the order u/s. 153A of the Income Tax Act for assessment years 2009-10 & 2010-11. The Revenue contended that the CIT(A) erred in relying on the decision of the Hon'ble Delhi High Court in a specific case, arguing that Section 153A does not restrict the assessment to incriminating documents. However, the Assessee argued that additions made under Section 153A should be based on incriminating material found during the search, as per the Delhi High Court's ruling in CIT vs. Kabul Chawla. The Tribunal held that the AO's additions were beyond the scope of Section 153C as no incriminating material was found during the search, rendering the additions unsustainable.

2. Genuineness of Execution of Contract and Expenses:
The dispute also involved the genuineness of execution of contract and expenses claimed by the Assessee. The Revenue contended that the Assessee failed to establish the genuineness of the contract execution and expenses. However, the Assessee argued that the disallowance did not arise from any incriminating material found during the search, and the AO's grounds for disallowance were irrelevant. The Tribunal agreed with the Assessee, noting that the AO's actions were based on conjectures and surmises, without any seized material or evidence to doubt the transactions. The Tribunal relied on the Delhi High Court's ruling in Commissioner of Income Tax vs. Kabul Chawla to support its decision in favor of the Assessee.

3. Assessment of Total Income and Net Profit:
The case involved the assessment of the Assessee's total income and net profit for the relevant assessment years. The AO had added a specific amount to the Assessee's income based on the assertion that the Assessee acted as a facilitator for subcontracted work. The AO relied on statements and held that the net profit should be adopted at a higher rate. The Ld. CIT(A) partially allowed the Assessee's appeal. However, the Tribunal, following the Delhi High Court's precedent, ruled in favor of the Assessee, dismissing the Revenue's appeal and upholding the Ld. CIT(A)'s decision to delete the addition made under Section 153(C)/143(3) of the Income Tax Act.

In conclusion, the Tribunal dismissed both the Revenue's appeals and the Assessee's Cross Objections, affirming the Ld. CIT(A)'s decision to delete the additions made by the AO. The judgment emphasized the importance of incriminating material in assessments under Section 153A and highlighted the need for a nexus between additions and seized material for sustainability in the eyes of the law.